Debt Finance and Economic Activity in the Euro-Area : Evidence on Asymmetric and Maturity Effects

This paper presents a model of alternative sources of credit to assess the predictive ability of underlying price- and quantity-based financial information variables for aggregate economic activity in the Euro area. A price-based financial information variable outperforms a quantity-based variable as a predictor of economic activity in both time series and pooled data regressions. The asymmetric signalling property of positive changes in the credit spread for decreases in economic activity is exceptionally strong in pooled data. It is present in short-term, long-term, and total credit spreads. In country-specific time-series regressions the asymmetric signalling property is strongest for the long-term credit spread. By contrast, we find no substantive evidence that changes in a quantity-based finance mix have robust predictive power